There for the Taking

Less than one month after the Supreme Court affirmed that economic development is a legal basis for eminent domain, state legislators are pushing back. Several states, such as Texas and California, are dealing with the issue in special sessions by proposing legislation that would prevent the government from seizing private property for commercial development. Meanwhile, similar constitutional amendments also are on the drawing board in Virginia and Alabama.

The upheaval stems from the high court's 5-4 June ruling that the city of New London, Conn., could condemn homes in advance of a private development project. In her dissent, Justice Sandra Day O'Connor cautioned that “the specter of condemnation hangs over all property. Nothing is to prevent the state from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory.”

Chief Justice William Rehnquist and Justices Antonin Scalia and Clarence Thomas also joined the dissent. Senate republicans are even calling for a special session in Connecticut that would limit the use of eminent domain.

With this ruling, economic development is now loosely defined as a legitimate public use, which should make it easier for cities to condemn parcels of property in order for private developers to build on them. In the past, condemnation was typically reserved to clear the way for public uses such as roads and highways.

While the ruling has drawn a lot of criticism, some observers agree with the high court's decision. Rodney Propp, chairman of Manhattan-based urban development firm Tahl-Propp Equities, called it “a very positive decision.” Propp's New York-based firm has developed roughly 3 million sq. ft. of retail and residential space in the metropolitan region.

To Propp, the ruling offers further proof that wider economic interests outweigh the rights of a few individual property owners. That would be a one-sided view, of course, but Propp knows firsthand what it's like to be on the receiving end of a bulldozer. “Sure, we've had properties condemned in Florida to make way for other uses, and we were fairly compensated,” he says. “It's often best for the local economy if other uses are introduced.”

John McIlwain, senior resident for housing at the Urban Land Institute, says that the outraged response is overblown. The Wall Street Journal published an opinion piece on June 27 under the headline “Supreme Folly.” Among other adjectives, the writer — University of Chicago law professor Richard Epstein — called the Kelo verdict “shameful” and “horrible.”

ULI's McIlwain doubts the ruling will unleash a flood of condemnation proceedings nationally. “Everyone has been hyperventilating about this case. From a city's point of view, the decision gives it more power to redevelop blighted neighborhoods,” says McIlwain. “But it also changes the idea of what constitutes blight.”

Scott Mollen, a real estate litigation partner at New York-based Herrick, Feinstein LLP, says that the majority opinion simply recognizes that economic development is as much a public use as building a new road. The court recognized that “the common good can't be sabotaged by an individual property owner that refuses to sell.”

Nor does Mollen believe that urban renewal projects are strictly designed to remove minority residents, as some have suggested. “These large-scale urban developments bring enormous benefits to the minority community through added jobs and a bigger tax base that can pay for better community services.”